Microeconomic Analysis of Demand and Supply for

Ducati Motor Holding SpA

ACE INTERNATIONAL BUSINESS SCHOOL

In the partial fulfillment of the requirement for the degree of

Master of Business Administration

Kathmandu, Nepal

QMU Matriculation Number: 18009645

Module: BM113 Business Economics

Submitted to: Mr. Gyanendra Adhikari

Date of Submission: 26 June 2020

Word Count: 2189

Table of Contents
List of Figure and Tables..................................................................................................................3
1. Introduction of Ducati.............................................................................................................4
2. Market Analysis.......................................................................................................................5
3. Demand Analysis of Ducati......................................................................................................5
3.1. Movement along demand curve.......................................................................................6
3.2. Shift of demand curve.......................................................................................................8
4. Supply analysis of Ducati.........................................................................................................9
4.1. Movement along supply curve.......................................................................................10
4.2. Shift of supply curve........................................................................................................12
5. Market Equilibrium................................................................................................................13
6. Price Elasticity (PE).................................................................................................................15
7. Income Elasticity (IE)..............................................................................................................16
8. Conclusion..............................................................................................................................17
9. References.............................................................................................................................18
10. Appendix.............................................................................................................................22
10.1. Number of Ducati produced and sold from 2014 to 2019......................................22
10.2. Demand curve for Ducati brand..............................................................................22
10.3. Supply curve for Ducati brand.................................................................................23
10.4. Contribution of Ducati Scrambler to overall Ducati sales.......................................23
10.5. Downward sloping demand curve for Ducati scrambler model..............................24
10.6. Competitor price analysis........................................................................................24
10.7. Calculation of Price elasticity of demand for Ducati Scrambler and Ducati
Panigale V4............................................................................................................................25
10.8. Calculation of Price elasticity of Income..................................................................26
List of Figure and Tables

Figure 1: Global sales of premium motorbikes in 2019

Figure2: Number of units of Ducati sold from the year 2014 to 2019

Figure3: Downward sloping demand curve according to law of demand

Figure4: Leftward and rightward shift of demand

Figure5: Number of units of Ducati produced from the year 2014 to 2019

Figure6: Upward sloping supply curve according to law of supply

Figure7: Leftward and rightward shift of demand

Figure8: Market equilibrium with surplus and shortage

Figure9: Lowering of equilibrium point to due to rightward shift of supply curve

Figure10: Lowering of equilibrium point due to leftward shift of demand curve

Figure11: Higher equilibrium point due to leftward shift of supply curve

Figure12: Higher equilibrium due to rightward shift of demand curve

Figure13: Different cases of price elasticity

Figure14: Different cases of income elasticity

1. Introduction of Ducati

When Audi, the premium car unit of wider

Volkswagen Group, purchased Italian
premium motorcycle group Ducati in 2012
at a price of $1.12 billion (Siler 2012),
their intentions were very clear to
strengthen the corporation by creating
synergy between purchased Italian and
the parent German company. Although
Ducati when compared to its parent
company is far smaller with negligible
contribution in improving the overall finance and economy of the group (Cobb 2019), it surely
improves brand positon of overall company in the automotive industry by adding premium
motorcycles in company’s portfolio. Since its acquisition, Ducati doubled its net worth and has
been doing well in the recent five years (Cobb 2019). In the year 2015, sales volume of company
grew over by 22% helping to achieve the landmark of 50,000 sales record for the first time in its
history (Beeler 2016). Since then, Ducati has been maintaining that minimum threshold of sales
for each year until 2019 (Ducati 2020a). Recent market reports indicates that the company has
been in right track to establish itself as world’s most desirable motorcycle brand. In 2018 and
2019, Ducati was a global market leader in the superbike segment, and one out of every four
superbikes sold in the world were Ducati Panigale (RW 2020). However, above success streak of
Ducati is expected to discontinue in the year 2020 because Italy, where production factory is
located, is one of the worst hit countries by COVID-19.
2. Market Analysis

Ducati competes in a high-end premium market of motorcycles where there are relatively less
competitors dominating the overall industry; indicating the oligopoly structure of market
(Hanno 2017). Motorcycles offered by Ducati competes in the displacement segment above 500
CC, and the market in this segment grew by 1.4% in 2019 (RW 2020).

Source: (McD 2020a, McD 2020b)

Market share of Ducati is negligible while compared to its competitors. However, it also
paradoxically reflects the strategic choice of company to stay as a niche player and not compete
directly with the mass manufacturers.

3. Demand Analysis of Ducati

Quantity demanded of any product is the amount of product that consumers are willing and
able to buy at a given price during a certain period (Sloman et al. 2014). Demand of Ducati has
remained somewhat constant ever since its significant increase in 2015.
 3.1. Movement along demand curve

Law of demand states that there is an inverse relationship between price and quantity
demanded of the goods assuming ceteris paribus (OpenStax 2016). Relationship between the
quantity demanded and price of product is represented by using graphical curve known as
demand curve, and for normal goods, the curve slopes downward.
Except for the year 2018, quantity demanded of Ducati is rising each year with increase in price.
Hence, it seems to go against the law of demand by possessing an upward sloping demand
curve (Appendix 10.2). This implies that Ducati shows the properties of Veblen product. That is
why people are willing to pay extra just to own a Ducati motorbike (Sam 2020). However,
Ducati Scrambler, the model of Ducati starting from lowest price range, seems to follow the law
of demand by possessing a downward sloping demand curve. With the increase in price each
year, the quantity demanded of Ducati Scrambler is decreasing (Appendix 10.5).
 3.2. Shift of demand curve

Demand curve shifts when there is change in the demand of product due to the change in
determinants other than price. Other than price of the product, there are also other
determinants of demand like taste and preference, income, population and expectations of the
customers, price of substitute and complement products (Parkin 2016).
Demand of Ducati motorbikes significantly shifted rightwards after the year 2015. Primary
reason behind the shift was due to introduction of Ducati Scrambler, a completely new model,
which increased the potential customers of Ducati by expanding its product offerings. The
Scrambler model alone contributed about 26% of overall Ducati sales from the year 2015 to
2019 (Appendix 10.4). The popularity of super-sport motorcycle is rising due to increasing
number of racing events, and this sub-segment of motorbikes is predicted to grow at CAGR of
11% up to 2021 (Technavio 2017). Ducati has dominated this particular sub-segment of
motorcycle market, and brand image of Ducati is high due to their winning records in racing
tracks. Additionally, brand loyalty of Ducati is also extremely high (Hanno 2017), which plays a
major role in rightward shift of demand. There are many online communities and motorcycle
clubs formed by proud owners of the Italian beauty that serve as major marketing tools of
brand, and they are keen to buy new versions of Ducati as soon as they are released in the
market (Sam 2020).

Sluggish and stagnant state of the overall motorcycle industry (Giacomini 2020) has been
pushing the demand curve of Ducati leftward. Rate of aging population is increasing by 3%
globally as well as in developed countries (MICE 2019). Since Ducati’s are designed for high
speed and power, they do not fit in needs of this expanding silver economy. Increasing
replacement of the potential younger customers of Ducati by older population will also shift the
demand curve of Ducati towards left. Similarly, lower prices of motorbikes from major
competitors of Ducati (Appendix 10.6) might be contributing in decreasing the demand for
Ducati motorbikes. Lastly, the market for high-performance electric motorbikes is estimated to
grow at CAGR of 60% until 2026 (GlobeNewswire 2020). Growing amount of interest in the
electric motorbikes as a substitute product can also shift the curve towards left.

4. Supply analysis of Ducati

Quantity supplied refers to the producer’s plan to supply its product at a given price during
certain period (Parkin 2016). Ducati maintains exclusivity of its products by producing
motorbikes in a very limited number. Since 2015, Ducati has been regularly producing more
than 50,000 units of motorcycle annually.

4.1. Movement along supply curve

As per the law of supply, quantity supplied of the product in market is directly proportional to
price of the product assuming ceteris paribus. When price of the product increases, despite of
the increment in marginal costs, producers are willing to produce more goods (Parkin 2016).
Supply curve illustrates the graphical relationship between quantity supplied and price, and for
normal goods, the curve is sloping upwards.
Regardless of annual increment in prices, Ducati produced fewer units from the year 2017 to
2019, which indicates the violation of law of supply (Appendix 10.3). This might be due to the
economic slowdown of overall motorcycle industry, which brings an exception in supply. As
Ducati is identified as a product possessing social symbol due to its high exclusivity. It believes
in building less and charging more. Therefore, the supply of such goods with social distinction
tends to be limited even if the price increases (Nandi 2018).
 4.2. Shift of supply curve

Similar to the shift in demand, Shift in supply curve also changes quantity supplied of any
products before and after the shift, at a constant level of price. Change in input prices, change
in technology of production, government policies, state of nature, number of suppliers, aims of
producers, and expectations in future price changes are the determinant of supply other than
price which cause a shift in the overall supply curve (Sloman et al. 2014).

Owners of the company aimed to produce more Ducati from year 2010, so that more of them
would be accessible and available in markets (Anderson 2020). Consequently, Ducati
established new plant in Thailand in 2011 for the Asian market (Hinchliffe 2017) and another
plant in Brazil in 2013 for the South-American market (Ultimate Motorcycling 2013). After
coming into full operations, these two pants increased the supply of Ducati motorcycles. In
addition, the production cost of Ducati also lowered down due to minimum tax and lowered
labor costs in these countries (Beeler 2011). All these summed up to shift the supply curve of
Ducati rightwards from the year 2015.

On the other hand, extremely high production cost of Ducati motorbikes has been continuously
pushing the supply curve of Ducati towards left. Since technology used in racetrack bikes is
directly incorporated in Ducati bikes, expensive parts with exquisite design is used to build
them (Lenovo 2019). The cost further increases because these bikes are handmade and
assembled without using any machines (Sam 2020). The ongoing COVID-19 pandemic will also
definitely contribute to leftward shift of supply curve. Production of Ducati in its major
manufacturing plant located in Italy halted for more than one month (Jackson 2020). Even after
resumption of the plant, production target of Ducati certainly will be at threat due to its strong
reliance on human workforce. It will ultimately reduce the supply of Ducati bikes in upcoming
days.

5. Market Equilibrium
Market equilibrium or market clearing is the point where demand curve and supply curve
intersects such that quantity demanded is equal to quantity supplied in a market (Economics
Online 2020). Equilibrium price is the corresponding price in such markets, which causes neither
shortages nor surpluses. Any price above the equilibrium causes supply to exceed the demand
resulting in surplus products whereas that below the equilibrium causes demand to exceed the
supply resulting in shortage of products in market.
Whenever the shifts in demand and supply curve occurs, changes in equilibrium price will also
occur. Equilibrium price will be lowered either when supply curve shift rightwards of when
demand curve shift leftwards.
Higher equilibrium price establishes either when supply curve shift leftwards or when demand
curve shift rightwards. Ducati, being a premium motorbike company has always tried to
maintain a higher price for its product in the market. It is able to do so by limiting its supply
below a certain number in market even when the demand is high. Despite of the increased
prices, high exclusivity and brand loyalty of Ducati motorbikes will prevent the decrement of
demand in market.

6. Price Elasticity (PE)

PE is the measurement of responsiveness of quantity demanded or supplied of a particular

product with respect to the change in the price (Khan Academy 2020). Mathematically,

PE= %change in quantity demanded or supplied/ % change in price

Price elasticity of demand (PED) calculated for Ducati Scrambler Icon and Ducati Panigale V4 is
1.94 and 3.81 respectively (Appendix 10.7). It indicates that both models of Ducati are elastic in
terms of their demand, so that these are more of a luxury product instead of product with
absolute necessity. Elasticity of these two products is result of competitive market of
motorbikes where more substitutes are available for these two particular model of motorbikes.
However, for broader category implying to overall Ducati brand, the demand tends to be more
inelastic (Spaulding 2020). Practically, PED has a significant positive relationship with brand
image and brand loyalty (Ellsworth 2019, Lumen learning 2020). Due to strong brand image and
brand loyalty, PED for Ducati will be relatively inelastic where strong attachment with brand can
overshadow the sensitivity to price changes. Consequently, despite of price increments,
customers still will be willing to pay just for the privilege of owning a Ducati.

7. Income Elasticity (IE)

It is the measurement of responsiveness of quantity demanded or supplied with respect to the
change in income of the consumers (Pettinger 2019). Mathematically,

PE= %change in quantity demanded or supplied/ %change in income

Income elasticity of demand calculated for Ducati motorbikes in the Italian market for year
2018 is 2.28, which indicates that Ducati bikes in Italy have elastic demand (Appendix 10.8). It
indicates that Ducati motorbikes fall into category of luxury or Veblen products whose demand
is sensitive to the income of its consumers. Therefore, Italy, whose economy was hit worst by
COVID-19 causing about half million unemployment will surely decrease the demand of Ducati
in Italy.

8. Conclusion
Summing up the report, demand of Ducati over the past few years has been more or less flat
indicating the stagnant state of company in terms of sales. Very small gap between the
produced and demanded quantities indicates minor surpluses and shortages. Despite of these
issues, by being able to maintain a higher equilibrium price for its products in the market,
Ducati has been able to keep up its revenues. However, amidst declining state of overall
motorcycle industry and ongoing COVID-19 pandemic, the stagnant progress of Ducati might
not be enough to sustain within the industry for a longer period. Therefore, one option for
Ducati might be to focus on diversifying its product in other segments for expanding its narrow
target market. Considering the elasticity of demand, it can also move into mass production and
lower down its price in order to benefit from higher economies of scale. However, these
strategies might backfire by diluting brand image and by snatching the exact soul of Ducati for
which it was known among its customers. Therefore, another option might be play on its
strength of being a luxury and Veblen product through increment in the current product prices.
Due to the price inelasticity coming off from strong brand image and brand loyalty of Ducati,
despite of minimum demand losses, price increment could actually increase revenue for the
company.
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10. Appendix
10.1. Number of Ducati produced and sold from 2014 to 2019

Total Models Produced (Sold or delivered)

Total Sold % change
Year Produced Scrambler Naked/sports cruiser Dual/Hyper Sport/superbike
units in sales
units produced(sold)price
2014 45339 45117 -
2015 55551 54809 21.5% 19577 (16049) $8495 14697 (18054) 11877 (11679) 9400 (9027)
2016 56978 55451 1.2% 17254(15,527) $8895 17697 (18114) 14556 (13528) 7471(8282)
2017 56743 55871 0.8% 14461(14055)$8895 17069(17173) 14357(14784) 10856 (9859)
2018 53320 53004 -5.1% 14654 (13137)$9195 10800 (13375) 13728 (13761) 14138(12731)
2019 51723 53183 0.3% 9350 (11873)$9395 14976(13820) 17353(16632) 10044 (10858)

Annual production and sales of overall motorbikes of Ducati including that for particular models
from the year 2014 to 2019 (Audi 2016; Audi 2017; Audi 2018; Audi 2019; Audi 2020)

Price of Scrambler Icon in the year 2015 (Revzilla 2020), Price of Scrambler Icon in year 2016
(Hinton 2016), Price of Scrambler Icon in year 2017 (MOTORCYCLE.COM 2020), Price of
Scrambler Icon in year 2018 (Hinton 2018), Price of Scrambler Icon in year 2019 (Ultimate
Motorcycling 2018).

10.2. Demand curve for Ducati brand

Every year Ducati upgrades its products with certain increment in price. Assuming everything
else constant, the demand curve from year 2014 to 2017 is upward sloping.
 10.3. Supply curve for Ducati brand

Every year Ducati upgrades its products with certain increment in price. Assuming everything
else constant, the demand curve from year 2017 to 2019 is downward sloping violating the law
of supply.

10.4. Contribution of Ducati Scrambler to overall Ducati sales

Total Ducati sold since 2015 = 272318 units

Total Ducati scrambler sold since 2015 = 70641 units

% contribution of Scrambler = (70641/272318)*100%

= 26% (rounded value)

 10.5. Downward sloping demand curve for Ducati scrambler model

9600

9400

9200

9000
Price

8800

8600

8400

8200

8000
11500 12000 12500 13000 13500 14000 14500 15000 15500 16000 16500

Quantity

10.6. Competitor price analysis

Models from the major competitors that are equivalent to the Ducati’s Panigale V4 are listed in
table below with their respective prices. Price of Ducati Panigale V4 (Ducati 2020b), BMW
S1000RR (DRIVEMAG RIDERS 2020), Yamaha YZF-R1 (Yamaha 2020), Honda CBR 1000RR (Honda
2020), Ninja ZX10R (Kawasaki 2020).

Brand Model equivalent to Ducati Panigale Price in 2019

Ducati Panigale V4 $21,995

Yamaha YZF-R1 $16,699
BMW S1000RR $20,000
Honda CBR1000RR $16,499
Kawasaki NinjaZX10R $16,099
 10.7. Calculation of Price elasticity of demand for Ducati Scrambler and Ducati
Panigale V4

The following calculations are based on exact data available from research. Due to limited data
available, the PED for Ducati Scrambler is calculated by taking the price and quantity of 2017 as
initial and taking that of 2018 as the final. Likewise, for Ducati Panigale, the price and quantity
of 2018 is taken as initial and that of 2019 is taken as final. In 2018, Panigale V4 represented
6100 out of total 9700 sales of overall Panigale family (Ducati 2020c). It implies that Panigale V4
alone represented 62% sales of the Panigale family in 2018. Likewise, the demand for overall
Panigale family of bikes in 2019 was 8304 (Ducati 2020a). Therefore, referring to previous year
of 2018, demand for Panigale V4 in 2019 is taken as 62% of 8304, which is equal to 5222.

Scrambler Icon
1 Price in 2017 8895
2 Price in 2018 9195
3 Change in price (1-2) 300
4 Demand in 2017 14055
5 Demand in 2018 13137
6 Change in demand (4-5) 918
7 % change in price (3/1)*100% 3.37%
% change in demand
8 (6/4)*100% 6.53%
9 PED (8/7) 1.94

Panigale V4
1 Price in 2017 21195
2 Price in 2018 21995
3 Change in price (1-2) 800
4 Demand in 2018 6100
5 Demand in 2019 5222
6 Change in demand (4-5) 878
7 % change in price (3/1)*100% 3.77%
% change in demand
8 (6/4)*100% 14.39%
9 PED (8/7) 3.82

10.8. Calculation of Price elasticity of Income

The calculation is done roughly for Italian market only. For 2017 and 2018, the GNI Per Capita
Income of Italian citizens (World Bank 2020a) and GDP per capita income of Italian citizens was
calculated. The % change from 2017 to 2018 was calculated and average of these two measures
is used to roughly predict the % change of income of Italian citizens.

Income 2017 2018 % change Average change in %

GNI per capita 42010 43260 2.98%
1.97%
GDP per capita 35098 35437 0.97%

Therefore, the % change in income of Italian citizens from year 2017 to 2018 is assumed to be
taken as average of 2.98 and 0.97, which is equal to 1.97%.

In 2017-18, the % change in the sales of Ducati in Italian market was 4.5% (Beeler 2019).

Hence, Price Elasticity of income for Italian market= 4.5%/1.97% =2.28